Virgin reports $3.7m loss, banks on strong customer service

Virgin Australia’s 2017 financial results were revealed this morning, with the airline leaning heavily on its strong customer experience after reporting a $3.7 million loss before tax.

Despite the overall Group’s loss, both Virgin Australia International and Tigerair were profitable, while Virgin’s domestic arm felt the impacts of subdued trading conditions.

The Group revenue was $5.05 million, an improvement of $26.3 million on 2016’s FY results, despite CEO John Borghetti predicting a profitable FY17.

The group statutory loss after tax came in at $185.8 million, which is an improvement of $38.9 million in 2016, which the airline attributed largely to its Better Business program; including things like fleet restructuring and fleet impairments.

The program was implemented ahead of schedule, and saw its savings target increase to $350 million per year in annual net free cash flow savings by the end of FY2019, up $50 million per year on its original target.

“The Group’s underlying performance for the 2017 financial year was affected by subdued domestic trading conditions and the impact of fleet simplification,” CEO John Borghetti said.

“The Group also concluded the first year of our three-year Better Business program, which is designed to reduce our cost base, enhance our cash flow and improve our capital position.

“The Group’s statutory result was impacted by restructuring charges predominantly from the Better Business program. While there are upfront costs associated with implementing the program, it will deliver significant, long-term cash flow savings.”

Borghetti admitted its domestic performance was affected by reduced demand for regional and corporate travel, which saw the airline “manage capacity prudently”, with sectors flown down 5.9 per cent compared to 2016.

Meanwhile, its international business delivered a $49.3 million improvement in underlying earnings before interest and tax, while Tigerair Australia’s domestic operations were also profitable, despite being impacted by its withdrawal from Bali.

But, as strongly pointed out in Virgin’s announcement, a lot of positives came from its many accolades.

Virgin scooped Best Airline and Airline Staff in the APAC region at the World Airline Awards, Best Business Class at the Airline Rating awards, and Best Domestic Airline at the recent NTIAs.

The Australian Competition and Consumer Commission (ACCC) also today authorised Virgin Australia’s strategic alliance with HNA Aviation, Hong Kong Airlines and HK Express for a five year term. This decision follows the ACCC’s decision to grant draft authorisation for the alliance in June 2017.

“Travellers are already embracing the benefits offered by the alliance, including the direct Melbourne – Hong Kong services that Virgin Australia launched last month.

“We look forward to working with our partners to strengthen the important tourism and trade connections between Australia, Hong Kong and mainland China and bring more travellers to Australia,” Borghetti said.

Borghetti said the company kept its eye on improving its balance sheet in FY17, which saw it yield positive results.

“Today, we reported the first positive free cash flow result since the 2012 financial year, and the Group’s highest reported cash balance as at 30 June.

“We have also delivered a 40.0 per cent improvement in Financial Leverage compared to the end of the 2014 financial year following an $839 million reduction in Net Debt.

“Throughout the 2017 financial year, the Virgin Australia Group continued to bring strong competition to all parts of the Australian aviation industry,” Borghetti added.

“The business also remained focused on improving the customer experience, with the launch of game-changing initiatives such as EconomyX, which has been very well received by customers and is yielding revenue growth for the company.”

Looking forward to 2018, Borghetti said its focus was largely on the Better Business program and managing capacity in response to demand.

“We will remain firmly focused on continuing the strong momentum of the Better Business program to deliver sustainable cash flow savings,” he said.

“We will also consolidate the position we have established in the domestic market, manage capacity in response to demand, and leverage opportunities in the growing Asian and North American markets.

“Given underlying performance improvements in the fourth quarter of the 2017 financial year and based on current market conditions, we expect the positive momentum seen in the fourth quarter to continue,” he added, without providing specific forecasts.